D. Relevant Court Cases
D.1. Introduction
(1) In addition to the legal framework presented earlier in Chapter 2, the court cases listed below provide further guidance as to whether a particular asset constitutes § 1245 property or § 1250 property. Although the issue in many of the cases below relates to whether property is eligible for the now-expired investment tax credit (ITC), the precedent that was developed to ascertain whether property constituted eligible property for purposes of ITC is equally applicable to ascertain whether property constitutes as § 1245 property for purposes of ACRS/MACRS.
(2) Unfortunately, there are no bright-line tests for distinguishing § 1245 property from § 1250 property. Each of the cases below is factually intensive. Additionally, opinions by different courts sometimes conflict; therefore, an ultimate determination of the categorization of an asset generally cannot be based upon reading merely one case. In addition to reading all of the cases on point, one must also consider whether the Service has acquiesced to a particular position or case. Advice should be sought where the asset at issue is not specifically discussed in any of the below opinions, if one is not sure of how to categorize a specific asset, or if the opinions are vague or conflicting.
D.2. Arrangement of Information
(1) This chapter contains two tables to assist examiners in locating pertinent cases that address specific assets:
(2) Table 1: Case Law by Case Name (in reverse chronological order)
(3) Table 2: Case Law listed by CSI MasterFormat Division (both 2020 (50 divisions) and 1995 (16 divisions))
(4) NOTE: Cost Segregation studies are often organized following the Construction Specifications Institute (CSI) MasterFormat Division system. The CSI MasterFormat system is a master list of numbers and titles classified by construction trades (concrete, electrical, plumbing, mechanical, carpentry, masonry, steel, etc.) that was developed to simplify and facilitate communication within the construction industry. From 2004 through 2020 the system uses 50 divisions with 35 being active divisions and 15 reserved for future expansion. The inclusion of the CSI MasterFormat Divisions in these tables is for informational purposes only and is not an endorsement of either the Construction Specifications Institute or the MasterFormat system.
(5) For reference purposes, this chapter also contains a third table listing all the CSI MasterFormat Divisions for both the 2020 and 1995 editions:
(6) Table 3: Listing of CSI MasterFormat Divisions (both 2020 (50 divisions) and 1995 (16 divisions))
D.3. Table 1: Case Law by Case Name (Reverse Chronological Order)
Court case holdings are documented in detailed tables in the full IRS Cost Segregation ATG Chapter 6. These cases address the proper classification of building components, systems, and improvements as either § 1245 property (tangible personal property) or § 1250 property (real property), based on factors including manner of attachment, design permanence, function, and industry practice. Key landmark cases include Hospital Corp. of America (establishing ITC criteria apply to MACRS), Scott Paper Co. (functional allocation method for electrical systems), and Whiteco Industries (inherently permanent standard).
D.4. Table 2: Case Law by CSI MasterFormat Divisions (2020 and 1995)
Court case holdings are cross-referenced by Construction Specifications Institute (CSI) MasterFormat Division to assist examiners in locating precedent for specific building components and systems. These divisions cover:
- Division 03 – Concrete
- Division 04 – Masonry
- Division 05 – Metals
- Division 06 – Wood, Plastics, & Composites
- Division 07 – Thermal & Moisture Protection
- Division 08 – Openings
- Division 09 – Finishes
- Division 10 – Specialties
- Division 11 – Equipment
- Division 12 – Furnishings
- Division 13 – Special Construction
- Division 21 – Fire Suppression
- Division 22 – Plumbing
- Division 23 – HVAC
- Division 26 – Electrical
- Division 27 – Communications
- Division 28 – Electronic Safety & Security
- Division 31 – Earthwork
- Division 32 – Exterior Improvements
- Division 33 – Utilities
D.5. Table 3: Listing of CSI MasterFormat Divisions (2020 and 1995)
MASTERFORMAT 2020 EDITION
The current MasterFormat Divisions include:
PROCUREMENT AND CONTRACTING REQUIREMENTS GROUP
- Division 00 — Procurement and Contracting Requirements
SPECIFICATIONS GROUP
General Requirements Subgroup
- Division 01 — General Requirements
Facility Construction Subgroup
- Division 02 — Existing Conditions (natural conditions)
- Division 03 — Concrete (footing)
- Division 04 — Masonry (concrete block/brick)
- Division 05 — Metals (beams)
- Division 06 — Wood, Plastics, and Composites (framing)
- Division 07 — Thermal and Moisture Protection (insulation water barrier)
- Division 08 — Openings (doorways)
- Division 09 — Finishes
- Division 10 — Specialties
- Division 11 — Equipment
- Division 12 — Furnishings
- Division 13 — Special Construction
- Division 14 — Conveying Equipment
- Division 15 — RESERVED FOR FUTURE EXPANSION
- Division 16 — RESERVED FOR FUTURE EXPANSION
- Division 17 — RESERVED FOR FUTURE EXPANSION
- Division 18 — RESERVED FOR FUTURE EXPANSION
- Division 19 — RESERVED FOR FUTURE EXPANSION
Facility Services Subgroup:
- Division 20 — RESERVED FOR FUTURE EXPANSION
- Division 21 — Fire Suppression
- Division 22 — Plumbing
- Division 23 — Heating Ventilating and Air Conditioning
- Division 24 — RESERVED FOR FUTURE EXPANSION
- Division 25 — Integrated Automation
- Division 26 — Electrical
- Division 27 — Communications
- Division 28 — Electronic Safety and Security
- Division 29 — RESERVED FOR FUTURE EXPANSION
Site and Infrastructure Subgroup:
- Division 30 — RESERVED FOR FUTURE EXPANSION
- Division 31 — Earthwork
- Division 32 — Exterior Improvements
- Division 33 — Utilities
- Division 34 — Transportation
- Division 35 — Waterway and Marine
- Division 36 — RESERVED FOR FUTURE EXPANSION
- Division 37 — RESERVED FOR FUTURE EXPANSION
- Division 38 — RESERVED FOR FUTURE EXPANSION
- Division 39 — RESERVED FOR FUTURE EXPANSION
Process Equipment Subgroup:
- Division 40 — Process Interconnections
- Division 41 — Material Processing and Handling Equipment
- Division 42 — Process Heating, Cooling, and Drying Equipment
- Division 43 — Process Gas and Liquid Handling, Purification and Storage Equipment
- Division 44 — Pollution and Waste Control Equipment
- Division 45 — Industry-Specific Manufacturing Equipment
- Division 46 — Water and Wastewater Equipment
- Division 47 — RESERVED FOR FUTURE EXPANSION
- Division 48 — Electrical Power Generation
- Division 49 — RESERVED FOR FUTURE EXPANSION
MASTER FORMAT 1995 EDITION
Before November 2004, MasterFormat was composed of 16 primary divisions:
- Division 01 — General Requirements
- Division 02 — Site Construction
- Division 03 — Concrete
- Division 04 — Masonry (concrete block)
- Division 05 — Metals(beams)
- Division 06 — Wood and Plastics
- Division 07 — Thermal and Moisture Protection
- Division 08 — Doors and Windows
- Division 09 — Finishes
- Division 10 — Specialties
- Division 11 — Equipment
- Division 12 — Furnishings
- Division 13 — Special Construction
- Division 14 — Conveying Systems
- Division 15 — Plumbing & Mechanical
- Division 16 — Electrical